Entrepreneurs: To ADR or not to ADR

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Adam El Shalakany

Partner, Shalakany Law Office

It takes a certain type of individual to be an entrepreneur. You have to be a risk taker and you have to be, in one way or another, comfortable with pressure.

It comes with the job.

While entrepreneurs are eternal optimists who are great at planning for the future when everything is going well, it is the same high-risk high-reward attitude which makes the entrepreneur less likely to plan for the worst.

Lawyers tend to be the opposite. Lawyers are conservative by nature and plan for the worst. Both occupations, lawyers and entrepreneurs, produce individuals who need to be comfortable with pressure.

As a disputes lawyer I see the ‘worst’ every day.  Clients who thought everything was going to work out smoothly, but became disillusioned when things went wrong and are now bogged down in lengthy and demoralizing legal battles. The one thing you hear over and over again from clients is ‘we didn’t think it would get to this’.

This should not come as a surprise when the market is awash with dispute resolution mechanisms (and contracts in general) that are at best not optimized and at worse disadvantageous.

The point of this article is to highlight, in my experience, what the best dispute resolution mechanism is for the average entrepreneur in Egypt.

Dispute resolution is called DR in legalese and, as the title of this article suggests, there is something called ADR or alternative dispute resolution. ADR is an alternative to the default dispute resolution mechanism. Generally, the default situation is that whenever things go wrong, you go to court. But the courts, in Egypt and abroad, can be costly, time-consuming and, most importantly, non-specialized.

If an app producer goes to court in Egypt, he or she needs to explain to the panel of non-specialized judges (who usually deal with run-of-the-mill civil claims) what their product is in technical terms. After that, they need to convince the court why they are owed damages or, conversely, are not liable.

In practical terms, this is very difficult in Egypt. The courts are swamped with civil claims. The average judge may have to get through sixty cases a day. As a result, the average civil claim hearing only allows for five minutes worth of oral pleadings per session. On a good day you may get half an hour.

That’s at best half an hour and at worst five minutes to explain to a panel of usually senior judges what the product is and what your case is.

It is difficult.

Compound this with the fact that judges are usually selected straight from law school with very little business knowledge and may not really understand, or want to understand, technological or innovative issues. To make matters worse, judges, like lawyers, tend to be conservative and resistant to innovation.

Don’t forget, while you plead for five to thirty minutes, your opponent will be doing their level best to destroy whatever it is you’re arguing.

The average civil claim in Egypt takes five years to reach an enforceable judgment. True, the administrative costs are usually low, but a good lawyer costs money, and five years of retaining a good lawyer, or firm, adds up, even if it’s before the courts.

So normal DR is not pretty.

That’s why the legal system came up with ADR, which encompasses a whole range of dispute resolution mechanisms like mediation, conciliation and arbitration and a variety of other ways to fix legal problems without having to go to the courts.

Now ADR is usually more expensive than going to court (especially arbitration) but it saves time. The average arbitration should take a year or two to complete, and then there is usually another year for enforcement. However, once you have an award the losing party is usually willing to settle to dampen the loss in return for speedy and consensual enforcement.

In mediation or conciliation, where the parties sit down in the presence of a trained mediator/conciliator, you can achieve concrete results in just a few days.

The most important advantage of ADR is that it gives you time to argue and explain your case. Arbitration, the go-to ADR process, is still antagonistic. Two sets of lawyers battle it out, but not in court. They do so in front of a panel of arbitrators, whom the parties select. The arbitrators can be engineers, app developers etc… but they are usually qualified lawyers who have experience in the sector subject to the dispute. This combines the legal expertise required with the technical expertise desired.

Most importantly, the parties can take as much time as they want to plead their case. A full day of sitting in front of the panel to explain the case (versus the thirty minutes at best allocated in court) is the norm. I have personally participated in hearings which have lasted two weeks. There are probably cases with longer hearing sessions. This all takes place at an ADR center, or hotel meeting room, where the parties are comfortable and able to organize and store their documents. You can even use PowerPoint to hammer your message home. Courtrooms are high stress, and not a fun place for witnesses.  There are also no technology facilities.

As you can imagine, arbitration, as explained above, is expensive. It is not for everyone. The arbitrators, and the lawyers, are paid hefty fees. But in general, ADR gets you more bang for your buck.

Whereas in court, strategy is usually procedural and you can win or lose a case using procedural tactics (filing objections, contestations and the like), in ADR people get down to the meat of the matter and discuss with specialized individuals the substance of the case.

Some caveats. ADR is usually only allowed in civil claims, and should be selected when drafting contracts with commercial counterparties. The parties entering into the contract can select, and mix and match options to achieve the desired result. The entrepreneur must decide, early on, when he/she is entering into their contracts, whether they would like low-cost, high time, low-impact or high-cost, high impact, medium time.

Knowledge is a weapon, and the entrepreneur, when adequately armed, may navigate the market more assuredly. Which is why I recommend people entering into ventures to request legal advice on these issues early on. A small consultation cost in advance may save time, cost and bother later on. In fact, instead of thinking of legal expenses as a cost, you would be better served thinking of them as an investment or even insurance. As they say, an ounce of prevention is worth a pound of cure.

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